I think it's just to do with the alpha channel of the smoke images. It's similar to how some extenders vanish in the middle of the RA2T2 arena.
What you're talking about is when you have two things with transparency (either via .tga alpha channel or set in the gmf) overlapping each other, the one behind will pop in and out of visibility depending on the camera angle. Quite annoying when I'm filming BBEANS matches.
However I think the smoke thing is something else, because it can happen even when the smoke isn't overlapping anything else with transparency. Also, when it happens, usually all the smoke turns into white boxes all at once. There is very rarely a mixture of regular smoke and glitchy smoke, and when there is it doesn't last long.
I think it's something to do with the game getting overloaded with displaying too many graphics. It seems to happen in some arenas more than others; for instance, I've never seen it in the Combat Arena, but it happens quite frequently in the Electric Arena 2, which has tons of fancy graphics.
